Gundlach’s Credit Trade Suggests the Coronavirus Rout Is Real
The spread between double-B and triple-B corporate bond yields has widened significantly in what could be a troubling omen for stocks.
The follow-through from stocks to credit is worth watching in the coming days and weeks.
Photographer: Spencer Platt/Getty Images
For better or worse, the latest developments from the coronavirus outbreak have focused a lot of investor attention on the U.S. stock market. That makes sense, given that the S&P 500 Index set a record high just a week ago but then fell more than 2.5% in consecutive sessions for the first time since 2015; President Donald Trump and aide Larry Kudlow are suggesting that investors buy the dip.
The $16.7 trillion U.S. Treasuries market doesn’t offer much guidance on whether the swift risk-off reaction is justified. As I wrote earlier this week, no record is safe in the world’s biggest bond market with so much uncertainty about how the coronavirus will dent the global economy. But just as important, Treasuries have been rallying for more than a year, even as equities soared, in no small part because of longer-term concerns about global growth, inflation and the limitations of developed-market monetary policy near the lower bound of interest rates. It shouldn’t be all that shocking that the benchmark 10-year yield touched 1.31% on Tuesday, a new low.